Analysts play down speculation about Asustek, Gigabyte

Analysts downplayed the possibility of Asustek Computer Inc's (華碩電腦) acquisition of Gigabyte Technology Co (技嘉科技), saying the merger will not create benefits of scale for Asustek.

"The chances of the acquisition happening are not high, though the rumors have been circulating for a long time," Chris Wei (魏傳虔), an analyst with Taipei-based Market Intelligence Center (MIC, 資訊市場情報中心), told the Taipei Times in a phone interview yesterday.

He said an acquisition would not benefit Asustek, the world's largest motherboard maker, in terms of component purchasing or cost reduction, as it already has large economies of scale.

Asustek vowed to ship a total of 60 million motherboards, including own brand and contract production this year, up from last year's 52 million. Gigabyte -- the nation's fourth-largest motherboard maker -- volumes are set to expand 10 percent to 18 million.

"As Asustek's motherboard shipments are already massive, even if it combines those from Gigabyte, it will not able to reduce sourcing costs much further," Wei said.

The Taipei-based daily DigiTimes reported yesterday that Asustek is looking into either merging with Gigabyte or purchasing Gigabyte stocks to enlarge production scale.

Both companies denied the market speculation in filings to the Taiwan Stock Exchange.

However, Molly Lin (林美如), an analyst with Polaris Securities Co (寶來證券), said that with Asustek aiming to separate contract making and brandname businesses by 2008, acquiring Gigabyte would strengthen its motherboard brand business.

"Asustek must create a strong brand after the separation is completed, and any merger with Gigabyte would be viable in terms of the company's strategic planning," she said.

Furthermore, Asustek is pushing for higher motherboard volume growth, as in the first half of the year its growth was less than 10 percent -- much lower than the approximately 20 percent figure in past years, she said.

Another factor supporting a possible hookup between Asustek and Gigabyte, she said, is the growing challenge from Hon Hai Precision Industry Co (鴻海精密), the nation's biggest electronics equipment maker.

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